Demand, not buyer origin, key to Vancouver market, CMHC says

Vancouver house prices are on track to post a 10.4% increase this year over last, but the CMHC attributes the gain to...

Don’t mention it

Vancouver house prices are on track to post a 10.4% increase this year over last, but the Canada Mortgage and Housing Corp. (CMHC) attributes the gain to the kinds of homes changing hands, not the participants in the market.

“One of the key things that’s been going on in Vancouver is there’s been compositional effects driving house prices higher,” remarked CMHC chief economist Bob Dugan during a media call at the end of October.

But so far as drivers of those sales, and the higher prices, the CMHC maintained ignorance last week.

“I don’t have data … that tells me what share of those single homes being sold are being purchased by foreign investors, and so that’s sort of a data gap that has to be solved,” Dugan told media. “CMHC is trying, in partnership with other people, to see if there are other things we can do to get more information, but for now that is a data gap that we just have to acknowledge exists.”

CMHC senior market analyst Robyn Adamache was even more consoling to the market.

“It doesn’t have a huge impact on the market,” she told attendees at the CMHC’s annual housing outlook conference last week in Vancouver. “It’s safe to assume at this point that the foreign investor presence is relatively limited, particularly when you look at a big-picture aggregate level. There are neighbourhoods that are probably more affected, there are certain condo buildings that are more affected by foreign ownership, but overall – [they’re] not a huge impact on the housing market.”

Price check

What is driving prices higher, according to the CMHC, is a mix of low interest rates, steady job growth and household formation through in-migration.

The CMHC isn’t expecting interest rates to rise before late 2016, and possibly even early 2017. A solid foundation for the market has helped push inventories of unsold condos down to just an eight-month supply, less than half what it was a year ago and a fifth of what it was in the dark days of 2009.

Prices have increased in turn, fuelling affordability concerns.

“Price is more the story,” said Dugan. “The various fundamental factors are supporting house prices, but not fully because house price growth has been so strong it’s run a little bit ahead of what fundamentals can support.”

However, the CMHC isn’t overly concerned; as Adamache said in her review of the Vancouver market at last week’s housing outlook conference: “High prices do not mean overvaluation.”

But, as in the past, strong market activity in Vancouver (and Toronto) is skewing local and national house price averages – something CMHC regional analyst Carol Frketich acknowledged in qualifying her forecast of a significant cooling trend in price growth over the next two years.

The CMHC expects a B.C. residence to cost an average of $636,300 in 2016, while in Vancouver the price will average $914,100.